Council leaders have called for an overhaul of the business rates appeals system, arguing it will undermine vital local services.

An appeal by Virgin Media to merge rates payments for its broadband fibre optic network to 68 councils could see local authorities having to refund £75m and lose future income.

The Local Government Association (LGA) said the case was one of many that councils could face unless the Government takes 'urgent action'.

In its submission to the Government's review of business rates, the LGA argued local authorities should be named as interested parties on appeals so that they have the opportunity to defend themselves.

It also wants the setting of business rates to be decided locally and for all income to be retained. At present, half goes to the Government.

Cllr Claire Kober, chair of the LGA’s resources board, said: 'We need a business rates system which is buoyant, responds to local needs, promotes growth and is fit for the 21st century.

'The financial risk facing local authorities due to business rates appeals remains one of the biggest weaknesses of the current system and has the potential to damage councils’ ability to improve people’s quality of life, support local businesses and drive local growth.

'The Government has promised to reform the appeals system in its Enterprise Bill and we look forward to seeing the details.

'Business rates account for almost a fifth of local government income and raised around £23bn in 2012/13 to fund local services. Councils must be able to contribute to the appeals process. This would not only enhance its accuracy but would help discourage speculative appeals like the one we have seen from Virgin Media.

'Councils and businesses both agree that business rates should be a local tax set by local areas which boosts growth and ensures local economies and businesses thrive.

'Councils could do so much more to support small businesses if we were given the freedom and finance to set rates and discounts locally. If all business rates income was retained by local government we could also invest in infrastructure and vital public services.'

She described pilots in Greater Manchester, Cheshire East, Cambridgeshire and Peterborough, which have been allowed to keep a greater share of rates income, as a 'step forward'.

Cllr Kober added: 'This should not be limited to a handful of areas and all parts of the country must be able to reap the benefits of a thriving local economy.'